A company issued 10%, 10-year bonds with a par value of $1,000,000 on January 1, 2008,...

A company issued 10%, 10-year bonds with a par value of $1,000,000 on January 1, 2008, at a selling price of $885,295, to yield the buyers a 12% return. The company uses the effective interest amortization method. Interest is paid semiannually each June 30 and December 31.

(1) Prepare an amortization table for all the payment periods using the format shown below:

(2) Answer the following questions based on your work:

(a) Which direction is carrying value going?

(b) Describe what happened with the unamortized discount?

(c ) What do you notice about cash paid versus interest expense as you look from top to bottom?

Semi-annual Interest
Period

Bond Interest Expense

Cash Interest Paid

Discount Amortization

Carrying Value

Expert Solution

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ekkarill92 answered 2 years ago

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